Japanese Rating Agency Chief Recommends Marshall Plan for US

In part because the Japanese corporate bond market is no where near as deep and large as its US counterpart, Japanese rating agencies hold far less sway than Moody’s and Standard & Poor’s. Nevertheless, the idea that Japan should write down its vast holdings of Treasuries and support US infrastructure spending (albeit with a few strings attached) is an attention-getting pronouncement, no matter what the source.

In all seriousness, though, I recall some German colleagues complain, in all seriousness, how they did not have good outlets for stimulus (Germany, the export powerhouse of Europe, has been foot-dragging on economic stimulus despite calls from its neighbors and abroad to ramp up spending aggressively). Germany already has good infrastructure, so they don’t need to spend on that. They already have good social safety nets, so extending them might not yield much bang for the buck. And they have met their Kyoto agreement greenhouse gas reduction targets too . When one mentions tax cuts, they shudder as if being asked to engage in unnatural acts. So the idea of sprucing up our bridges and roads might be an easier sell.

From Bloomberg:

Japan should write-off its holdings of Treasuries because the U.S. government will struggle to finance increasing debt levels needed to dig the economy out of recession, said Akio Mikuni, president of credit ratings agency Mikuni & Co.

The dollar may lose as much as 40 percent of its value to 50 yen or 60 yen from the current spot rate of 90.40 today in Tokyo unless Japan takes “drastic measures” to help bail out the U.S. economy, Mikuni said. Treasury yields, which are near record lows, may fall further without debt relief, making it difficult for the U.S. to borrow elsewhere, Mikuni said…

The U.S. budget deficit may swell to at least $1 trillion this fiscal year as policy makers flood the country with $8.5 trillion through 23 different programs to combat the worst recession since the Great Depression. Japan is the world’s second-biggest foreign holder of Treasuries after China.

The U.S. government needs to spend on infrastructure to maintain job creation as it will take a long time for banks to recover from $1 trillion in credit-market losses worldwide, Mikuni said. The U.S. also needs to launch public works projects as the Federal Reserve’s interest rate cut to a range of zero to 0.25 percent on Dec. 16. won’t stimulate consumer spending because households are paying down debt, he said….

Japan should also invest in U.S. roads and bridges to support personal spending and secure demand for its goods as a global recession crimps trade, Mikuni said….

Combining debt waivers with infrastructure spending would be similar to the Marshall Plan that helped Europe rebuild after the destruction of World War II, Mikuni said.

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  1. Anonymous

    How do falling Treasury yields make it difficult for the U.S. to borrow? That makes no sense. High prices for U.S. bonds are a symptom of high demand.

  2. Anonymous

    How about we stop immigration for one
    year and give back 1.4 million jobs to the countries current citizens??

    I guess that would be too easy. We have to play the politically correct game, right? Which means screw the little guy so Harvard grads get to keep all the prizes!

  3. zanon

    The Germans are nuts.

    Lower taxes create higher deficits, and so increase aggregate demand as much as anything else. In fact, this is the automatic stabilizer that kicks in in every recession (see Rogoff).

    The only reason Infrastructure has the grip on the Progressive mind that it does is because FDR did it, and Keynes suggested it at a time before there was a national highway system. In 2008, Keynes would be calling for a payroll tax holiday.

  4. Anonymous

    There are way too many broken window ideas floating around. With most western country (including Japan) going off a demographic cliff, what about lowering cost of living, socializing child care.

    Or maybe just build Mechas. If these idiots are going to spend trillions anyways, I demand something cool.

  5. alan von altendorf

    Makuni is nuts. Far better to let the yen appreciate and go on a shoping spree, acquiring US assets at firesale prices. Jeez, c’mon. Forgive debt??

  6. Yves Smith


    Japan is still a military protectorate of the US. And between the lines, Makuni expects Japan to own to a significan degree the infrastructure that was built. So this is a two-fer: the Japanese get (presumably) the construction work (and they do have world class infrastructure companies) and own the asset afterward. The Japanese remember well the pushback when they bought trophy assets in the 1980s.

  7. Anonymous

    The Credit Default Swap black hole continues to gobble up trillions of dollars… just who, exactly, is getting all that cash?

    Makes the Ocean’s Eleven crew look like a bunch of gang bangers knocking over a taco stand.

  8. Anonymous

    In all seriousness, we should outsource our central banking function to European CB or BoJ. The role of US $ as reserve currency has become an albatross.

  9. Anonymous

    zanon, why would the incremental rise in income from a payroll tax holiday not flow largely into debt service and/or savings so provide no substantial demand boost but instead ‘leak’ into the financial system where, via a process of distribution, it might assist in further enriching the few?

    aside from that, i’m not at all convinced fiscal and monetary policies are not limited in their effectiveness but can become destabilizing.

  10. James B

    I think this is a great idea. The Japanese are stuck with a huge raft of Treasury and agency securities that they’ve accumulated as a way to keep their currency depressed and trade surplus high. Now, they’re pretty much stuck with the things. If they tried to liquidate their position, it’d drive prices through the floor and send the Yen higher. Meanwhile, the US is increasing its debt so fast as to make default a real possibility. So why not forgive the debt and get some nice quid pro quo in exchange? It’s not like they bought those T-bonds because they thought they were a good investment anyway.

    Except that the US authorities are still in deep denial about the crisis. The old crew thinks “deficits don’t matter,” and the new bunch buy the Reich/Krugman line that now is not the time to worry about the deficit. As a result, I don’t think they’d be particularly interested in debt forgiveness at this point. In a couple years, with the dollar getting crushed and/or interest rates going through the roof, they may feel differently.

  11. Peter T

    When Japan entered deflation, the US economists came along with their advice. How comforting is it for the collective Japanese soul to give advice to their former advisors?

    Japan is an old society. Why should they forgive the debt when they need the proceeds to feed their retirees? They should buy productive assets in the US and elsewhere to get something for their dollars, or why not invest in US infrastructure if it gives enough interest.

  12. alan von altendorf


    I wonder if the Japanese are happy with “protectorate” status? And certainly the folly of buying trophies (esp. Hollywood studios) will shape whatever investment program is contempated. But I see your point. Government to government precludes doing the right thing.

  13. Anonymous

    This isn’t going to happen for a million reasons. One being, Japan doesn’t really have a lot of lose money lying around relative to the costs of infrastructure and their own deficit. They are a nation in long term economic and demographic decline, with deep denial about both.

    The entire world economy is going down and it’s rather laughable to see each country pretend it’s different/better.

  14. River

    The Japanese must be worried about how well the US will be able to protect Japan in the future. It’s a sound line of reasoning. If the US economy tanks and military budgets decline how many ‘protectorates’ will the US be able to continue to protect?

    I doubt this Japanese suggestion is being made due to Christmas Spirit.

    Another thing the Japanese have to be considering is the cost to Japan for US protection vs the cost for Japan to provide their own protection. With Japanese exports tanking and unemployment rising it might make sense for Japan to employ some Japanese in an expanded Japanese military.

    Many, many black swawns lurking in the rice paddies.

  15. Anonymous

    “The dollar may lose as much as 40 percent of its value”

    Pretty insightfully that is exactly how much it was devalued by FDR.

    Germany saw hyperinflation and they didn’t like it the first time around. can’t blame them for being skittish.

  16. Bob_in_MA

    “Treasury yields, which are near record lows, may fall further without debt relief, making it difficult for the U.S. to borrow…”

    Can someone explain why that isn’t nonsensical? Treasury yields are falling because of too much debt? I think this guy needs to lay off the sake. Apparently, Japanese ratings agencies are run by people of the same caliber as their American counterparts.

  17. Anonymous

    Japan? Long-term economic and demographic decline? Uh, don’t see it. As they age they will continue to substitute capital for labor, a process that is nowhere near its limits, and they will continue to save and grow richer. And the whole concept of demographic decline is based on the idea that inter-generational transfers are the only legitimate kind.

    They could usefully skip investing in us, though, if their Marshall Plan entailed putting some Japanese John McCloys in charge to force anticorruption reform (with their exquisite politness they might call it corporate governance) and structural adjustment.

  18. lineup32

    “The dollar may lose as much as 40 percent of its value to 50 yen or 60 yen”

    If Japan is beginning to think out loud about U.S. defaults either outright or via inflation then the backroom discussions have to be ongoing along with other export driven Asian countries. Anybody that does business with Toyota USA has visited their campus in Torrance or Nissan Adv wing over at Chiat/Day gives one some appreciation for the size and scope of Japan’s interest in the US consumer. Doubt the Toyota and other non US brands will be maintaining anywhere near these current employment levels in the US if the consumer doesn’t quickly return, which will significantly alter our economic relationship and bring out many more articles like this in the coming year.

  19. Anonymous

    “Treasury yields, which are near record lows, may fall further without debt relief, making it difficult for the U.S. to borrow elsewhere”…

    I think he is referring to the future when people and institutions around the world realize they are lending money to the US Gov for essentially 0 return (or a loss)…and stop lending. That is when the USD/JPY drops another 40%


  20. Anonymous

    My advice in this economic climate is this:

    1)Get your hands on as much physical silver and gold as you can.

    That’s it, fiat currency is about to collapse.

  21. Anonymous

    Interesting that Germany (the only Country produces and exports for profit) has been carrying Euroland on their back this whole time. Germany doesn’t want to cough up some more funds (for the leeches) so everything is their fault.

  22. wunsacon


    Your post is a breath of fresh air!

    I, too, thought of the tax holiday. I also like the Pickens Plan. But, what I really like is your refraining from bashing Keynes.

    Many people bash Keynes based on a rather mechanical, superficial, and questionable extrapolation of his most well known policy recommendation at the time, as though the man would recommend the exact same policies were he alive today.

    Also, people often bash him as well as setting the stage for a huge increase in government’s *continued* deficit spending, even though he said government should cut back when times are good.

    In today’s environment, he might well have suggested a tax cut, like you mention.

    Anyway, thanks for the common sense post.

  23. lineup32

    A link to Koo’s presentation:

    Richard C. Koo, the world-renowned chief economist of Nomura Research Institute, discussed the lessons learned from Japan’s “lost decade” during a presentation at CSIS. During his discussion, Koo suggested that government stimulus can play a key role in alleviating the problems of a balance sheet recession. Koo’s recent book, The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession, discusses these issues in greater detail


  24. Soylent

    “1)Get your hands on as much physical silver and gold as you can.”

    Have you ever considered why it is that this shiny metal with little or no utility is valuable?

    You are willing to exchange your goods and services for this nearly useless metal token because you have come to expect others to reciprocate. In other words, it’s the collective delusion that this token has value that gives the token value; exactly the same as fiat money except that you hand the printing press to gold and silver miners.

  25. Anonymous

    wunsacon, you are correct that keynes did not advocate permanent deficit financing but i think this was based on an assumption typical to almost all other neoclassicals, that the capital system could be sustained through (primarily) demand-side management and that it would always recover — which, during its postwr ‘golden age’ seemed to be the case and provided footing for those believing the cycle (and longer run stagnation) had been vanquished or at least could be _if only_ the proper policy mix was implemented.

    well, with decade by decade rates of growth chugging down from the earlier 1970s on that has proven rather delusional, and very much not only in the imperial center.
    iow, permanent crisis management, whether keynesian, monetarist or neoliberal, developed and extended in response to that which it claims to solve but evidently cannot (unless one takes dispossession through financialization to be solution, though i’d say we’re seeing the limits to that particular but only after its having fostered dramatic increases in inequality within and between nations).

    systems have endings and we might do better to think about moving away from the tired intermediate states between ‘free mkt capitalism’ and state capitalism, both on exactly the same plane though different in form and rhetoric. nor will either extreme save the day.

    the choice boils down to an old slogan: ‘socialism or barbarism’.

  26. Anonymous

    “Have you ever considered why it is that this shiny metal with little or no utility is valuable?

    You are willing to exchange your goods and services for this nearly useless metal token because you have come to expect others to reciprocate. In other words, it’s the collective delusion that this token has value that gives the token value; exactly the same as fiat money except that you hand the printing press to gold and silver miners.”

    I’ve actually given it quite a bit of thought. In an ideal world, we wouldn’t have to resort to pieces of metal to store wealth because we would have responsible citizens and politicians and business leaders. Alas, we don’t live in that world and that is precisely why we need to return to gold standard.

    Yes, its barbarous. Yes it was used by heathens. But you know what? There is an elegance to its simplicity.

    And would I prefer to put my money in the hands of miners and engineers?

    Let’s look at it from a different perspective. What social value or innovation have bankers ever provided us? What technological advancement have they ever brought forth?

    If a miner has to go 2 miles beneath the earth’s surface or 10 miles below sea water, he might just come up with some interesting technological innovations as a by-product.

    A banker? As far as I can tell, bankers have done nothing but bring the world economy to its knees and re-distributing wealth into the hands of a few people.


  27. Anonymous

    Everybody seems to think that they have a solution. The problem is that they all want to do it with my tax dollar. Does humility exist in the world anymore? I suspect that it will be coming back in force.

  28. KAIMU

    ALOHA !!

    Lets make this simple with a simple diagram …


    Lets see … What is the fastest way to get money to the people? Hummmm???

    Does anyone see a useless “middleman” in the above diagram? I DO!!

    GET RID OF THE US FED and its member banks! All they do is take our own money and jack it up with interest and then loan it to us!

    So if the US TAXPAYER has BAILED OUT the US BANKS then why do WE THE PEOPLE still have to pay 5% on a mortgage or 16% on a credit card? In fact why should we have to pay interest and why should we have to pay it to a private bank cartel? WHO DIED AND MADE THEM GOD?


    WOW … 95 years if failure! WHAT A GREAT TRACK RECORD!

    Prior to 1913 you could buy new a house in the USA for $1800. Now you cannot buy a car bumper for $1800! The US Peso has lost 95% of its purchasing power and why is the US FED still around?

    There is a saying in AA(Alcoholics Anonymous)where a bunch of drunks meet to try and stay sober one more day.


    That saying is the TRUTH OF TRUTHS! If the US FED is such an expert and we US voters are so smart then how is it we are all facing insolvency now?

  29. Josh Dowlut

    Sounds as if Peter Schiff’s 4 Asians and an American on a desert island story may have over estimated the Asian’s willingness to consume their own fruits of labor.

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